Well as the ink on my last blog dries on the virtual page, I got this note and article from my friend Carl Reuter:
Sandy:
I wanted to thank you. I was about to default on my loan when I found out how underwater I was on my place and you were the one coaching me not to miss payments and to look at other options. That caused me to do a lot of research and to go up to bat with my lender and get a serious principle reduction and I managed to get refi'd through another lender. I ended up writing a few short articles on the process in hopes it may help others to get out from under similar debts.
Thanks again, Carl
I share the following in hopes it may help fellow homeowners in crisis.
Myself, along with many others in America are “upside down” or “underwater” on their homes. I found I’d be lucky to get half of what I’d paid for it and I found the bank wouldn’t give me a re-finance to get out from under my 5 year fixed interest only loan. With the economic slowdown my income had decreased dramatically as well. I started to research my options as it didn’t make sense to keep paying for a home I owed $450k on that was worth less than $300k.
A little research taught me that 95% of the folks that go to their mortgage company for a “loan modification” end up defaulting on the loan. If one gets behind in payments the bank is happy to add all those costs onto the back end of the loan and may lower the payment amount and possibly reduce the interest rate but it will cost you and they will not forgive any of the principle. You end up with an even bigger loan! The common misconception is that the lender won’t even talk over options unless you’re already behind in payments. At that point you are faced with foreclosure, which wrecks your credit for 7-10 years or you could “short sale” the home for less than fair market value which would only ding your credit for 2 years. I found the option by not defaulting. I Googled the topic and was able to untangle myths from facts and discovered the “Short payoff re-fi”, also called a “short re-fi” or “short payoff”.
If you qualify, you can negotiate your loan down and still keep your house. Here’s how it works; the homeowner secures a loan elsewhere, essentially a re-fi, but for slightly less than the current market value of the home and they or a third party loan mod specialist presents that offer to their original lender and convinces that bank to accept a lesser payoff, making it clear that the borrower will have to short sale the home or default on the loan if the offer is refused due to financial hardship. The short payoff re-fi means a lesser loss for the bank since the home refinances for about the price of the future short sale and eliminates the costs of foreclosure. As more banks like BofA and Citibank, are seeing the merits of these types of payoff, they are allowing it. You may find a list of banks online. I’ve been dealing with Citibank but and found some of the folks in their short sale department didn’t have a clue about the new short refi program. I went to my mortgage broker and had to educate him as well. Besides being at a lot better interest rate, my monthly payments will drop by over a grand. The whole process took 6-8 weeks. Citibank got a “broker price opinion” of the property value, their appraisal, and negotiated my payoff based on that value.
Before you get too excited here’s the catch; you have to be able to qualify for a FHA loan which is the only one approved for short payoffs, still have good credit, no missed payments, only one loan on the property and prove some financial hardship. It also helps if the original loan is owned by the bank rather than a third party investor. I believe that is called a portfolio loan and it simplifies the process because the bank doesn’t have to get approval from investors.
I originally Googled for “short payoff refi” and found links to some companies that will do all the legwork for around $3000. It’s illegal in California for them to take any money from you till escrow closes so they basically work for free, hoping all the pieces will fit together and get paid at the end. This unfortunately means they may not work as hard on these types of loans and in my case I got discouraged at the slow responses I got and decided to do the legwork myself. Its taken a lot of phone calls and internet research to get the facts straight. I can see why more people don’t know about these options.
None of us signed up for home loans thinking we would one day face losing our homes or be forced to renegotiate the amount we owed just to keep the home. For many of us offering the bank less is the only option and before we shed a tear over their loss, go see Michael Moore’s newest movie, Capitalism- A Love Story. I am no expert on any of this so please don’t seek me out for advice. I encourage you to do your own research, tell everyone you know that’s in this situation and be persistent. Go to your mortgage broker and educate him or her, get the new loan, pay your old loan off for what the house is really worth and don’t forget to get your taxes reassessed for the new value of the home. Good luck.
Carl Reuter is a local renewable energy contractor and long time resident of Santa Cruz that loves living here even though it’s a costly place to call home.
Sunday, September 12, 2010
Saturday, September 11, 2010
My Life Raft for the American Economy
Since I’m on the subject of exploding oaks, I might as well start discussing the American economy. Last year we were 11.7 trillion dollars in debt. Where are we now? Going up -- 13.53 million in debt. That is a scary number. The question I have to ask myself is where is the money going to come from to replace that debt?
Lets look at a couple of facts. What hasn’t changed? The unemployment rate and the foreclosure rate in the last year haven’t changed. About 9.6 % of Americans are unemployed and about 5% of homes are in some point of foreclosure. That hasn’t changed but the American debt has. Why?
It’s not that the government isn’t trying. First they created more jobs so now one in six Americans work for the federal government. Wait – that doesn’t seem right either. Clearly if the government is going into MORE debt how are they going to keep paying these workers? I doubt anyone anywhere across the sectors is feeling super confident about the sustainability of their jobs these days particularly if you just listen to the media.
Typically the government buys mortgage backed securities and counts on the profit as the debt is repaid or sold. As property values decrease and people remain in their homes and just stop paying the mortgages, the liquid value of those assets diminish adding to the federal debt. Hence the Federal Reform Act with the programs to prop up the unpaid mortgage debt. The feds said “we will give you the opportunity to stay in your home by lowering your interest rate, extending the length of your mortgage or paying you to leave if everything else has failed.” The bonus is at no cost to your credit. The reality however was simple – almost no one benefited from these programs and the money for them is all but used up. Fannie Mae and Freddie Mac are close to bankruptcy.
Traditionally the deficit in the treasury is returned through taxation but no one wants that, least of all any guy who wants to be reelected. The guy who is barely making his mortgage anyway doesn’t want that either or he might now able to pay his mortgage. No equity, working harder, still able to pay a mortgage on a house that they have little confidence will be valued what it was in 2007? They are not going to vote for the guy that says their taxes are going up so the administration regardless of bull or bear avoids that tactic.
It was actually pretty exciting to cold call a prospective client and hear an excited voice: I reduced my mortgage and got to stay in my house. That was the exception. My broker explains it best. You’ve got three choices. “You can stare out into the ocean and claim it’s not an iceberg, you can rearrange the chairs on the titanic or you can start building a life raft.” I’m of the unsinkable Molly Brown character. I’m hammering as fast as I can. So when I too hit the wall of diminishing income relative to the number of houses that I own I took a big step back. I cried, denied and then went to work. The secret is time, the need for change and the ability to incrementally change the reality we live in. The Zen Buddhists say that you should do everything slowly; less stress and more success. The fear and discomfort we want to believe by reading the newspapers is probably greater than the reality. So I’m really going out on a limb here and I predict that overall the market is actually going to get better not worse and I’m going to give you the reasons.
It’s an ugly picture really. What it says is we are going into three years of more failures and foreclosures due to the option arm loans. I would have to say that the investors are still holding pretty tight to their money on that basis. Is it all true? Well not across the sectors. The entry level housing is being driven pretty hard by three things; the American dream to own a home, the strength of the FHA programs and the up and coming “echo boomers” that don’t have bad mortgages and have the youth and health to work hard and afford their homes. If you look at the entry level housing, a lot of it is in escrow.
You talk to the stock market analysts and they will tell you what you are looking at when you look at this double hump – it’s called a “shoulder.” Long term it doesn’t mean anything. Blow it up over time and it means that the market is going to trade sideways for awhile and then reverse and come back. Good homes will hold their value. Bad homes won’t.
So what was Rick selling yesterday? He was selling private money. The Loan Source is a mortgage banker and they can do in house appraisals and have their own money to fund a loan. That can be a beautiful thing. “That can speed up a transaction,” he said. Typical mortgage brokers package your loan and might send it to Nebraska to get you the best rate, but if Nebraska denies the loan you might not get the loan at all. One of the government responses to the nasty sort of lending practices that we saw in recent years was to create a big pool of appraisers and deny a mortgage broker the right to use the guy with whom he had built a relationship of trust. It also wiped out the guys that were juggling numbers to make a property appraise that really wasn’t worth that value. The problem is if the “pool” appraiser has a lot of sales nearby then it’s easy but if he’s not from the area and really doesn’t understand local value then it might be as wrong an evaluation as before or worse. The other thing the government did was take away the portability of loans meaning that if the broker packages the loan and it’s denied, he might not be able to package it again. Sale fails. Wait a minute – the reason the mortgage broker was sending it to Nebraska in the first place was to get you the lowest interest rate possible. Take that away and it means a perfectly good credit worthy buyer may have to get a higher interest rate. That’s just plain wrong. Ultimately it still comes down to how much does the guy know that’s working on your loan.
Google the “Center for American Progress” and you’ll be getting info from some of the brightest eggheads in the numbers game. They are talking a lot about “privatization.” With Fannie Mae and Freddie Mac becoming Tom, Dick and Harry the eggheads are out there looking for money. Duh. The investors are just waiting to buy property at 30 cents on the dollar and resell to us at 75 cents on the dollar. Nothing really changes except government restrictions. The feds say each entity that originates a loan, bank or other, will get “rating” based on the institution’s history, stability and performance. Kind of like an API score for schools. The government has put out the Moody’s report to rate a lender. The better the rating, the more likely you are to go to that entity. The government is trying to level the playing field by categorizing it, organizing it and trying to manage it. Rick says the past where 70% of loan origination comes from mortgage brokers is over and 80% of them will go out of business.
Only thing is I have a problem with numbers. It’s not because I can’t do them - I have an advanced epidemiology and statistics degree. Ok, so I made a film about risk analysis rather than learn my chi squared analysis by heart. I just wasn’t the type to sleep in math classes behind people that had triangular heads at 8 am. I did get one thing out of that year though. You can manipulate numbers a lot and a rating is one number. Nothing should be determined based on one number. I also have loyalty and no one is going to talk me out of my own mortgage broker that quickly by saying he is a dying breed.
A lender has to know how to make a loan work. Meet Terry Gordon, president of First Funding, in Campbell. He works in an unassuming building on Bascom Ave. When you walk through the front door and meet Melody, Terry’s congenial and knowledgeable wife and partner, you already feel at ease. Then you go to Terry’s office. Enter the Command Center. There is nothing in this room that feels like the past – you have entered the space age. Terry is a good sized man with a chair that swivels smoothly in the center of an armada of computers. Terry is the spreadsheet wizard. Tell him your story and in a matter of 10 minutes he will tell you whether what you want to happen will. He will always qualify his statements with the possibility of other options but ultimately I haven’t found him to be wrong yet. If he can’t do the loan he’ll tell you why and where you can try. He will help you with financial planning and ease your through the possibilities for your future with honesty and experience. Besides how can you not trust a guy with that has a fondness for spotted fluffy dogs, party cocker spaniels. Before you go to other brokers or websites where you have to fill out squares and tabs and likely spend money before you get an answer, why not just try the old fashioned way – pick up the phone and make a call. And as for rates – my clients have all said he got them the best.
But Rick is right, Terry can’t do everything. He’ll tell you when he can’t. Try Rick or Julie Baxter at the Loan Source if you need a mortgage banker. Try not to worry and take things more slowly.What ever you do, don’t default, plan. Get a financial analysis of your future. Decide whether you can stay comfortable in the home you live in. If not make plans to downsize and get your profit at the other end – a good home that’s going to appreciate not a home that is in a stagnant market. Walk away intact with cash in your pocket and start over without ruining your credit. Don’t get on the titanic at all. I plan on looking at that big double hump of loan failures in another way. I took on a mascot with a double hump. He’s going to take you slowly and surely to one place, the Oasis. Give us a call, your agent. We’re free, we’re conscientious and we’re reliable.
Lets look at a couple of facts. What hasn’t changed? The unemployment rate and the foreclosure rate in the last year haven’t changed. About 9.6 % of Americans are unemployed and about 5% of homes are in some point of foreclosure. That hasn’t changed but the American debt has. Why?
It’s not that the government isn’t trying. First they created more jobs so now one in six Americans work for the federal government. Wait – that doesn’t seem right either. Clearly if the government is going into MORE debt how are they going to keep paying these workers? I doubt anyone anywhere across the sectors is feeling super confident about the sustainability of their jobs these days particularly if you just listen to the media.
Typically the government buys mortgage backed securities and counts on the profit as the debt is repaid or sold. As property values decrease and people remain in their homes and just stop paying the mortgages, the liquid value of those assets diminish adding to the federal debt. Hence the Federal Reform Act with the programs to prop up the unpaid mortgage debt. The feds said “we will give you the opportunity to stay in your home by lowering your interest rate, extending the length of your mortgage or paying you to leave if everything else has failed.” The bonus is at no cost to your credit. The reality however was simple – almost no one benefited from these programs and the money for them is all but used up. Fannie Mae and Freddie Mac are close to bankruptcy.
Traditionally the deficit in the treasury is returned through taxation but no one wants that, least of all any guy who wants to be reelected. The guy who is barely making his mortgage anyway doesn’t want that either or he might now able to pay his mortgage. No equity, working harder, still able to pay a mortgage on a house that they have little confidence will be valued what it was in 2007? They are not going to vote for the guy that says their taxes are going up so the administration regardless of bull or bear avoids that tactic.
It was actually pretty exciting to cold call a prospective client and hear an excited voice: I reduced my mortgage and got to stay in my house. That was the exception. My broker explains it best. You’ve got three choices. “You can stare out into the ocean and claim it’s not an iceberg, you can rearrange the chairs on the titanic or you can start building a life raft.” I’m of the unsinkable Molly Brown character. I’m hammering as fast as I can. So when I too hit the wall of diminishing income relative to the number of houses that I own I took a big step back. I cried, denied and then went to work. The secret is time, the need for change and the ability to incrementally change the reality we live in. The Zen Buddhists say that you should do everything slowly; less stress and more success. The fear and discomfort we want to believe by reading the newspapers is probably greater than the reality. So I’m really going out on a limb here and I predict that overall the market is actually going to get better not worse and I’m going to give you the reasons.
Now I can’t take credit for everything that I have said. What spawned this conversation is a Silicon Valley Association of Realtors breakfast meeting yesterday where I got some of the statistical facts I just presented. Rick Soukoulis from the Loan Source in San Jose gave the talk. He really made me sit forward when he put the same graph on the screen that I have been carrying around in my pocket since I came back to selling real estate a few months ago.
It’s an ugly picture really. What it says is we are going into three years of more failures and foreclosures due to the option arm loans. I would have to say that the investors are still holding pretty tight to their money on that basis. Is it all true? Well not across the sectors. The entry level housing is being driven pretty hard by three things; the American dream to own a home, the strength of the FHA programs and the up and coming “echo boomers” that don’t have bad mortgages and have the youth and health to work hard and afford their homes. If you look at the entry level housing, a lot of it is in escrow.
You talk to the stock market analysts and they will tell you what you are looking at when you look at this double hump – it’s called a “shoulder.” Long term it doesn’t mean anything. Blow it up over time and it means that the market is going to trade sideways for awhile and then reverse and come back. Good homes will hold their value. Bad homes won’t.
So what was Rick selling yesterday? He was selling private money. The Loan Source is a mortgage banker and they can do in house appraisals and have their own money to fund a loan. That can be a beautiful thing. “That can speed up a transaction,” he said. Typical mortgage brokers package your loan and might send it to Nebraska to get you the best rate, but if Nebraska denies the loan you might not get the loan at all. One of the government responses to the nasty sort of lending practices that we saw in recent years was to create a big pool of appraisers and deny a mortgage broker the right to use the guy with whom he had built a relationship of trust. It also wiped out the guys that were juggling numbers to make a property appraise that really wasn’t worth that value. The problem is if the “pool” appraiser has a lot of sales nearby then it’s easy but if he’s not from the area and really doesn’t understand local value then it might be as wrong an evaluation as before or worse. The other thing the government did was take away the portability of loans meaning that if the broker packages the loan and it’s denied, he might not be able to package it again. Sale fails. Wait a minute – the reason the mortgage broker was sending it to Nebraska in the first place was to get you the lowest interest rate possible. Take that away and it means a perfectly good credit worthy buyer may have to get a higher interest rate. That’s just plain wrong. Ultimately it still comes down to how much does the guy know that’s working on your loan.
Google the “Center for American Progress” and you’ll be getting info from some of the brightest eggheads in the numbers game. They are talking a lot about “privatization.” With Fannie Mae and Freddie Mac becoming Tom, Dick and Harry the eggheads are out there looking for money. Duh. The investors are just waiting to buy property at 30 cents on the dollar and resell to us at 75 cents on the dollar. Nothing really changes except government restrictions. The feds say each entity that originates a loan, bank or other, will get “rating” based on the institution’s history, stability and performance. Kind of like an API score for schools. The government has put out the Moody’s report to rate a lender. The better the rating, the more likely you are to go to that entity. The government is trying to level the playing field by categorizing it, organizing it and trying to manage it. Rick says the past where 70% of loan origination comes from mortgage brokers is over and 80% of them will go out of business.
Only thing is I have a problem with numbers. It’s not because I can’t do them - I have an advanced epidemiology and statistics degree. Ok, so I made a film about risk analysis rather than learn my chi squared analysis by heart. I just wasn’t the type to sleep in math classes behind people that had triangular heads at 8 am. I did get one thing out of that year though. You can manipulate numbers a lot and a rating is one number. Nothing should be determined based on one number. I also have loyalty and no one is going to talk me out of my own mortgage broker that quickly by saying he is a dying breed.
A lender has to know how to make a loan work. Meet Terry Gordon, president of First Funding, in Campbell. He works in an unassuming building on Bascom Ave. When you walk through the front door and meet Melody, Terry’s congenial and knowledgeable wife and partner, you already feel at ease. Then you go to Terry’s office. Enter the Command Center. There is nothing in this room that feels like the past – you have entered the space age. Terry is a good sized man with a chair that swivels smoothly in the center of an armada of computers. Terry is the spreadsheet wizard. Tell him your story and in a matter of 10 minutes he will tell you whether what you want to happen will. He will always qualify his statements with the possibility of other options but ultimately I haven’t found him to be wrong yet. If he can’t do the loan he’ll tell you why and where you can try. He will help you with financial planning and ease your through the possibilities for your future with honesty and experience. Besides how can you not trust a guy with that has a fondness for spotted fluffy dogs, party cocker spaniels. Before you go to other brokers or websites where you have to fill out squares and tabs and likely spend money before you get an answer, why not just try the old fashioned way – pick up the phone and make a call. And as for rates – my clients have all said he got them the best.
But Rick is right, Terry can’t do everything. He’ll tell you when he can’t. Try Rick or Julie Baxter at the Loan Source if you need a mortgage banker. Try not to worry and take things more slowly.What ever you do, don’t default, plan. Get a financial analysis of your future. Decide whether you can stay comfortable in the home you live in. If not make plans to downsize and get your profit at the other end – a good home that’s going to appreciate not a home that is in a stagnant market. Walk away intact with cash in your pocket and start over without ruining your credit. Don’t get on the titanic at all. I plan on looking at that big double hump of loan failures in another way. I took on a mascot with a double hump. He’s going to take you slowly and surely to one place, the Oasis. Give us a call, your agent. We’re free, we’re conscientious and we’re reliable.
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